China's booming economy is drawing foreign investors in record numbers. However, for some, that has meant having to deal with volumes of ever-changing regulations, high initial capital expenditures and shifting political alliances. Some of China's most highly regulated industries have come to represent the last, great Holy Grail for foreign investment on the mainland. Whether it is banking or energy, these sectors continue to remain elusively out of reach for all but the biggest and most patient of the large multinationals. In this article, we focus on three very different industry sectors to examine how the regulations affect being able to do business in China.

Banking

In 2007, China's banking sector rose to 52.6 trillion yuan ($7.5 trillion), up from 43.9 trillion yuan ($6.3 trillion) in 2006, according to statistics released by the China Banking Regulatory Commission (CBRC). China's five big state-owed banks-Bank of China, China Construction Bank, the Industrial and Commercial Bank of China, the Agricultural Bank of China and the Bank of Communications-accounted for 53.3 percent of the total assets. Eyeing the potential market on the mainland, foreign banks are now also increasingly moving in to set up their own, locally incorporated branches, giving them the ability to conduct both foreign currency and renminbi business.

By the end of 2007, more than 20 foreign banks had received permission to operate on the Chinese mainland with corporate status. The banks, including Citibank, Deutsche Bank, Standard Chartered Bank and Mizuho Corporate Bank, can conduct comprehensive business in foreign currencies and renminbi. In November 2006, the CBRC promulgated the Regulations of the People's Republic of China on the Administration of Foreign-funded Banks, paving the way for foreign banks to enter the Chinese market, but putting in place restrictions on business scope and capital requirements that foreign-funded banks must first fulfill.

Currently, branches of foreign banks are allowed to engage in local currency retail business with local residents if the branches incorporate locally. However, in order to do so, they must acquire a local currency business license. To do this, foreign bank branches must individually apply to the CBRC for the license.

Foreign banks must also meet significant capital requirements before they are allowed to operate on the mainland. According to the regulations, the minimum operating fund requirements for foreign bank branches are 200 million yuan ($29 million) to conduct foreign currency business and 300 million yuan ($43 million) if they want to conduct both renminbi and foreign currency businesses. For locally incorporated banks of foreign banks, the register capital required is the same as domestic Chinese banks, 1 billion yuan ($143 million), while the minimum operating fund requirement is 100 million yuan ($14 million).

To establish a foreign-funded bank, an applicant must first apply for preparatory establishment and submit the following documents to the banking regulatory institution in the location where the foreign-funded bank is to establish:

Application that covers name, address, registered capital or operating capital and the categories of the institution to be established;

Feasibility study report that refers to the draft of the articles of association of the solely foreign-funded bank or Sino-foreign equity joint bank to be established;

Business operation contract by all shareholders to a solely foreign-funded bank or Sino-foreign equity joint bank to be established;

Articles of association of the shareholders to a solely foreign-funded bank or Sino-foreign equity joint bank, or the articles of association of the foreign bank or a branch to be established;

Diagram of the shareholder structure that refers to the three most recent annual statements of the shareholders that plan to establish a solely foreign-funded bank or Sino-foreign equity joint bank or of the foreign bank that plans to establish branches;

Anti-money laundering system of the shareholders or the foreign bank;

Photocopy of the business license or financial business-licensing document, which is issued by the financial regulatory authority of the country or region of the foreign shareholders or the foreign bank;

Other materials as required by the banking regulatory institution of the State Council.

Once the preparatory work is completed, the applicant must submit a completed application to begin business along with the following documents to the banking regulatory institution where the bank is to be established:

List of names and curriculum vitae of the persons in charge of the proposed bank authorization to key persons in charge;

Capital verification certificate issued by a statutory capital verification institution;

Security prevention measures and documentation of other facilities related to business;

Guarantee issued by the foreign bank establishing a branch stating that the branch will be responsible for all taxes and other debts the proposed branch will incur;

Other documents as required by the banking regulatory agency of the State Council.

After an applicant has finished these initial steps, it will be allowed to submit a formal application for the CBRC's final approval. Once final approval has been given, the bank may commence operation.

The process, from the initial preliminary assessment to the commencement of operations, can take as long as two years, with the preliminary assessment taking upward of six months, preparation work for the formal application another six months, and the formal application another three months.

The author is with Dezan Shira & Associates (www.dezshira.com)